Modest change in hedge funds’ ag position hides market tensions

Commentators flagged signs of tension in hedge fund betting on agricultural commodities, notably in sugar, in which they are fighting a “silent tug of war” with producers, even amid somewhat stable headline data on positioning.

Managed money, a proxy for speculators, trimmed its net short in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by a net 7,455 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

However, the relatively small change in speculators’ net short position, while coming amid complaints from traders of a lack of volatility in grain markets, disguised some more marked changes in specific contracts.

In Chicago soybean futures and options, for instance, hedge funds raised their net long at the fastest pace in three months.

Indeed, commentators highlighted some signs that hedge fund positioning may be poised for reversals.

‘Possible inflexion point’

New York-traded arabica coffee, for instance, appeared “vulnerable to short-covering”, said Societe Generale, rating its as “oversold” after hedge funds raised their net short in the contract above 40,000 contracts to some 3,000 lots from the record high.

Speculators’ net long in Chicago grains, Oct 17 (change on week)

Soybeans: 68,168, (+37,176)

Soyoil: 24,925, (+1,793)

Soymeal: 21,127, (+8,072)

Kansas wheat: -4,662, (-5,505)

Chicago wheat: -77,692, (-9,963)

Corn: -170,684, (-7,747)

Sources:, CFTC

Rabobank noted that the selling came as “rains returned to the Brazilian arabica belt after a period of dryness that threatened flowering”.

However, extremes in positioning provoke ideas that further such bets may be unlikely, and indeed that price reversals could be in the offing as holdings are closed.

SocGen also flagged a “possible inflexion point” in Kansas City hard red winter wheat futures, in which hedge funds turned net short in the latest week for the first time in nearly six months, reflecting ample world wheat stocks which drove futures on Friday to a contract closing low.

The bank said its analysis shows a “mismatch” between the shift to the net short and the relatively small number of funds holding short bets, compared with those retaining long positions.

‘Silent tug-of-war’

On New York raw sugar, SocGen also flagged the potential for short-covering, after hedge funds raised their net short in the contract back above 100,000 contracts, a historically large such position, and representing an “oversold” bet.

Speculators’ net longs in New York softs, Oct 17, (change on week)

Cotton: 48,682, (-3,487)

Cocoa: -18,446, (+3,114)

Arabica coffee: -40,511, (-8,387)

Raw sugar: -102,672, (-11,674)

Sources: Agrimoney.comn, CFTC

The selling came even as producers held off forward sales of the sweetener with the gross commercial short on raw sugar futures and options falling to 292,793 contracts in the latest week, the smallest in nearly six years.

Marex Spectron, noting that sugar prices had fallen by only 0.14 cents over the week to last Tuesday despite substantial speculative selling, said that “there is a silent tug-of-war taking place between the funds, which are extremely short, and the producers who are correspondingly long, ie under-hedged”.

A deciding factor may be the extent of rains in Brazil’s key Centre South region, where precipitation, in slowing the cane harvest, could exacerbate the dent to supplies from seasonal mill shutdowns.

Speaking of the prospects of the Centre South sugar output meeting 2017-18 forecasts of 31.4m tonnes, Marex said that “it is beginning to look tight, especially if rain comes”.

‘A little bit supportive’

In Chicago-traded soft red winter wheat, Benson Quinn Commodities flagged that “managed money adding nearly 10,000 to their net short” in the contract, the world benchmark for wheat prices.

Speculators’ net longs in Chicago livestock, Oct 17, (change on week)

Live cattle: 100,766, (+588)

Lean hogs: 62,277, (+2,762)

Feeder cattle: 18,384, (+713)

Sources:, CFTC

This selling “could be a little bit supportive” to prices, the US broker said.

The comments came as wheat futures were on Monday rebounding a touch from contract lows.

Indeed, agricultural commodity prices overall have performed weakly, standing close to all-time lows as measured by the Bcom ag sub-index, while commodities as a whole have recovered nearly 8% from June lows, according to the main Bcom index.

“Global economic activity is helping energy prices and the broader commodity outlook, but in grains the big harvest and ample supplies continue to press on price,” ag advisory group Water Street Solutions said.

‘Vulnerable to profit-taking’

SocGen flagged that the broader commodity buying had left a range of energy contracts, including Brent crude and gasoil, “overbought” and “vulnerable to profit-taking”.

Managed money net long in top 13 US-traded ags and (change on week)

Oct 17: -70,338, (+7,455)

Oct 10: -77,793, (-24,529)

Oct 3: -53,264, (-66,648)

Sep 26: 13,384, (+27,688)

Sep 19: -14,304, (+58,746)

Sources:, CFTC

This description was also applied to metals including aluminium and copper.

However, the bank applied it only to one agricultural commodity contract, feeder cattle, which has attracted the “largest money-manager long position” on data going back to 2006.

In the latest week, hedge funds also raised their net long in Chicago feeder cattle futures and options for a seventh successive week, the longest such streak in more than two years.